UK Plc stages dramatic rebound as FTSE 250 booms

The UK mid-cap index is often a good barometer of the strength of the UK economy, so there’s reason to cheer today’s surge to an eight-month high.

A spectacular session for mid-cap investors today left the FTSE 250 index more than 600 points, or 3% higher as confidence in UK plc rebuilds after 2022’s bear market.

Led by double-digit percentage gains for Future (LSE:FUTR) and ASOS (LSE:ASC), there were 35 stocks up by 5% or more at lunchtime as the London stock market’s domestic barometer blasted back above the 20,000 threshold. In the final hour of trading, the index was up 620 points at 20,520, an eight-month high.

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The scale of the improvement was far in excess of the gains posted by the FTSE 100 index and its European peers, as buyers globally returned to growth and technology stocks following last night’s US Federal Reserve meeting.

The FTSE 250 index was already 2% higher by the time of the Bank of England’s latest rates decision and posted further progress despite policymakers hitting consumers and corporate budgets with borrowing costs at a fresh 14-year high of 4%.

Lags in monetary policy transmission mean the 10 increases in rates since December 2021 are expected to have an increasing impact on the UK economy in the coming quarters.

For now, however, it is looking like the scale of the downturn will be much less severe than the Bank and investors had feared last autumn when the FTSE 250 stood as low as 16,661.

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An easing in wholesale energy prices means Governor Andrew Bailey now sees an easier path to returning to inflation to target and confidence has been boosted by the unwinding of the mini-budget in Chancellor Jeremy Hunt’s autumn statement on 12 November.

Signs of resilience in corporate earnings have also encouraged mid-cap investors to return after the FTSE 250 posted one of the worst performances of all global markets in 2022.

A focus on heavily sold stocks has generated some big profits, with ASOS now almost double its October value and electricals retailer Currys (LSE:CURY) up by a third already this year.

Today’s risers board in the FTSE 250 index was dominated by stocks whose valuations were shredded in 2022, with all but six companies out of the top 25 performers having fallen by a third or more last year.

Others rebounding sharply today included shopping centre developer Hammerson (LSE:HMSO), which added 2.7p to 29.3p, and Watches of Switzerland (LSE:WOSG) with a gain of 7% or 69p to 1,025p.

Essentra (LSE:ESNT) rallied 18p to 237p after the components specialist announced plans for a special dividend of £90 million and £60 million of share buybacks as it looks to redistribute proceeds from the disposals of its filters and packaging divisions.

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There was also a rise of 140p to 3,280p for Cranswick (LSE:CWK) after the food producer reported “particularly robust” trading in December as it benefited from strong demand for its fresh pork and its convenience and gourmet ranges of festive products.

Revenues growth accelerated in the third quarter and the company stuck by guidance for the financial year. Peel Hunt described the update as encouraging but expects trading in the current quarter to be more subdued as consumers tighten their belts. The broker has a “hold” recommendation and 3,800p target price.

Interim results from cyber security firm NCC Group (LSE:NCC) also offered a note of caution as it reported that buying decisions were taking longer to complete in North America and the UK.

This means annual revenues are now expected to increase year-on-year by only single-digits, a trend that has prompted the company to reduce its headcount by around 7%.

It remains confident in medium-term prospects in the cyber market and believes its strategic actions will position the business to capitalise when the market improves. Shares fell 12.2p to 172.2p but Peel Hunt believes the weakness is a “great opportunity” based on a target price of 363p.